A trustee takes legal responsibility of trust assets, manages the trust, and carries out the purpose of the trust. Beneficiaries, people or entities named to receive trust assets, will depend on the trustee for legal expertise, financial knowledge prudence, objectivity and empathy. When selecting a trustee, it's important to consider the different types of trusts and associated responsibilities.
How Do You Choose a Trustee?
Most people pick a friend, family member, attorney or corporate trustee to oversee their assets. Before choosing a trustee, consider these four factors.
Trustees must be prepared to devote enough time to properly manage the trust. Serving as trustee involves a significant amount of work, such as:
- Filing income and fiduciary tax returns.
- Securing and selling real estate.
- Maintaining property.
- Conducting appraisals for personal items, like jewelry and artwork.
- Keeping records of trust account activity.
- Preparing trust accounting reports to provide to beneficiaries.
- Communicating with beneficiaries.
- Coordinating distributions to or on behalf of the beneficiaries.
Depending on the type of assets, trustees may have to spend substantial time processing requests, mediating, and making final decisions about distributions. With career, family, and community responsibilities, it can be difficult for individual trustees to quickly respond to time-sensitive beneficiary requests.
One responsibility of the trustee is to oversee distributions to beneficiaries. Some trusts may provide specific instructions about the nature of permissible distributions, but often, trustees will have to decide which distributions are appropriate.
Trustees who have personal relationships with beneficiaries may struggle to make objective decisions. Complicated family dynamics, especially paired with grief, can make this responsibility more difficult. For example, a trustee may be required to withhold funds from a financially irresponsible relative but may fear that the decision will hurt their relationship.
Corporate trustees, though they may not have as much knowledge of the relationships between family members, can make impartial decisions. They operate under the fiduciary duty to carry out the terms set forth in the trust document.
In addition, institutional trustees provide continuity; trust officers will always be available to administer the trust, where individual trustees could be unavailable should the unexpected occur.
Individual trustees, without expertise, have an increased likelihood of making mistakes or mismanaging trust assets. To complicate matters further, auditors do not review the decisions of individual trustees. Serious errors could remain undetected for years, resulting in heavy fines or lawsuits. Internal auditors and regulatory government agencies oversee that corporate trustees properly manage trust assets. They review account management processes, compliance procedures, and fulfillment of the fiduciary duty. Institutional trustees include a team of trusted professionals experienced in accounting, law, and compliance and carry liability insurance.
Like individuals, corporate trustees may need to consult or hire an attorney as well as CPA to prepare and file annual tax returns.
Corporate trust companies and professional fiduciaries often charge fees equal to a percentage of the value of the assets. They may also have hourly fee schedules. As a corporate trustee, we engage external tax preparers and attorneys for legal matters that will pass through expenses paid by the trust.
Can I Have Two Trustees?
It is possible to choose a corporate trustee and an individual trustee to administer the trust. By naming co-trustees, the trust can have both professional management and decision-making input from a family member or friend.
BECU Trust Services is a trade name used by Members® Trust Company under license from BECU. Trust services are provided by Members® Trust Company, a federal thrift regulated by the Office of the Comptroller of the Currency. Trust and investment products are not deposits of or guaranteed by the trust company, a credit union or credit union affiliate, are not insured or guaranteed by the NCUA, FDIC or any other governmental agency, and are subject to investment risks, including possible loss of the principal amount invested.
This article is intended for informational purposes only and is not intended to provide legal or tax advice regarding your situation. For legal or tax advice, please consult your attorney and/or accountant. Any opinions expressed are those of the presenter and do not necessarily reflect the position of Members Trust Company.